The real state of
the world economy is dire by Egon von Greyerz
| September 8, 2013
We are now back to the “green
shoots” era of false hope and total misunderstanding
of the real state of the world economy. There are minor
tidbits of good news that combined with manipulated and
seasonally adjusted economic figures are giving politicians
worldwide reason for spreading their optimistic gospel of
recovery that has nothing to do with reality.
A world based on debt
How can a world with $250 trillion of debt
and over $1 quadrillion of worthless derivatives ever recover?
Of course it can’t, especially since this is a world
that is supported by legs of worthless printed paper money
– legs that are just getting longer and more unstable
by the day as trillions are added to the debt every year.
Wherever we turn Europe, USA, Japan and
many other nations, the situation is totally beyond repair.
But as I have said in recent interviews and articles, it
is not just beyond repair but we are likely to be at the
end of a major economic cycle that started at the end of
the Dark Ages. I wrote about this already back in 2009 in
my article “The Dark Years Are Here” . Major
economic cycles take a long time to develop and if we are
now at the beginning of a major downturn in the world economy,
people living today will only experience the very beginning
of the downturn. But sadly the beginning will be a major
and very unpleasant upheaval that virtually nobody will
escape.
We have had a century of false prosperity
based on printed money and credit. In the last 100 years
we have seen the creation of the Fed in the US (a central
bank owned, created and controlled by private bankers) combined
with fractional reserve banking (allowing banks to leverage
10 to 50 times), exploding government debt and a derivatives
market of $1.4+ quadrillion. These are the principal reasons
why the world economy has expanded in the last century and
particularly in the last 40 years. These four extremely
shaky legs, Central bank printing, Bank leverage, Government
borrowing and Derivatives manufacturing have created a world
of delusional wealth and illusory prosperity. Also, there
is a total absence of moral and ethical values. We are in
the final stages of an era of extreme decadence, an era
that sadly cannot and will not have a happy ending.
Europe a hopeless case
But still, governments and the media are
continuing to feed us with good news which bears no resemblance
to the real state of the world economy. In Europe the Mediterranean
countries are expanding their debt at exponential rates.
Government debt to GDP of Spain, Portugal, Italy and Greece
is ranging from 100% to 180%. There are futile attempt at
austerity but this only leads to lower growth and higher
debts. There is sadly no way out for these countries whose
population is suffering terribly. The best solution would
be to leave the EU and the Euro, renege on the debts and
devalue currencies. But the Eurocrats are unlikely to accept
this and would rather add more debt and print more money,
making the situation even worse.
US debt will sink the world
The situation in the US is no better. There
is hardly one economic figure being published that has anything
to do with reality. Real unemployment is 23% and not 7%
as published. GDP using real inflation figures has been
declining for years, and real wages have declined for 40
years. The perceived increase in living standards has only
been achieved with a massive increase in debt. US government
debt was $1 trillion in 1980, $8 trillion in 2006 when Bernanke
became Chairman of the Fed and is now $17 trillion and growing
by at least one trillion a year. So Bernanke has managed
to create $9 trillion of debt during his brief 7 years as
Chairman of the Fed. It took 230 years from 1776 to 2006
for the US to reach $8 trillion and Bernanke has beaten
that in 7 years. An astonishing achievement. And this debt
excludes unfunded government liabilities of around $220
trillion. Who in their right mind can believe that the US
can get out of this hole!
Yes the US and the rest of the world will
print unlimited amounts of money. But printed money is printed
worthless pieces of paper and has nothing to do with wealth
creation. The worldwide printing will just add to the already
unsustainable debt worldwide and not create one penny of
added prosperity. Instead we are likely to see a hyperinflationary
depression in many countries.
For the privileged few that have financial
assets to protect, physical gold stored outside the banking
system is likely to be the best way to preserve wealth and
purchasing power.